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Changes in the global environment will increasingly impact operating costs, markets for products, the availability of raw materials, and the reputation of businesses

Nairobi, 21 June 2013 - The future of the private sector will increasingly hinge on the ability of businesses to adapt to the world's rapidly changing environment and to develop goods and services that can reduce the impacts of climate change, water scarcity, emissions of harmful chemicals, and other environmental concerns.

Further Resources

From extreme weather events, to rising pressures on finite natural resources, changes in the global environment will increasingly impact operating costs, markets for products, the availability of raw materials, and the reputation of businesses, from finance and tourism, to healthcare and transport.

While the risks are significant, such environmental changes also represent major opportunities for businesses that successfully manage them, and seize the demand for sustainable technologies, investments and services.

These are among the main findings of a new report released by the United Nations Environment Programme (UNEP), SustainAbility and Green Light Group today, entitled GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector.

"GEO-5 for Business is in many ways a prospectus for the 21st century company-one that internalizes how rapid and accelerating environmental change will shape risks, but also the need and demand for new sustainable products and market opportunities," said UN Under Secretary-General and UNEP Executive Director Achim Steiner.

"The report speaks to the reality of climate change and natural resource scarcities and outlines how more creative decisions by the private sector with longer term horizons may assist in meeting these challenges. It makes the case that whether it be in water saving, or climate-proofing infrastructure, the world is going to look for solutions that in turn will drive corporate competitiveness, reputational risk and a transition to an inclusive green economy,' added Mr. Steiner.

The new report is based on UNEP's Global Environment Outlook (GEO-5); the UN's most comprehensive assessment of the state of the global environment. According to that report, human pressures on the global environment mean that several critical environmental thresholds are approaching, or have already been surpassed, beyond which abrupt changes to the life-support functions of the planet could occur.

Through a detailed analysis of the construction, chemicals, mining, food, and other industries, GEO-5 for Business outlines the specific risks of such changes to each sector, and how businesses can adjust to create long-term competitive advantages.

The report shows that the rising frequency of extreme weather events, often linked to climate change, poses risks to all sectors. Severe floods in Australia in 2010-11, for example, resulted in more than US$350 million in claims to re-insurer Munich Re, which contributed to a 38 per cent quarterly drop in profit for the company. The same period of extreme weather in Australia contributed to a loss of US$245 million in earnings by mining group Rio Tinto.

Rising temperatures are challenging the future viability of tourism businesses, says the new report. A study cited in GEO-5 for Business states that fewer than half of the ski resorts operating in the US northeast are likely to remain economically viable in 30 years, if average winter temperatures increase between 2.5° and 4°F.

The UNEP study says that more than 80 per cent of the capital needed to address climate change may come from the private sector. This can bring about significant 'green economy' investment opportunities in the finance sector for green buildings, energy-efficiency technology, sustainable transport and other low-carbon products and infrastructure

In cities, around 60 per cent of the infrastructure needed to meet the needs of the world's urban population by 2050 still needs to be built, presenting significant business opportunities for greener urban construction and retrofits. Over 1.5 million square feet of building space are being certified with green standards each day.

Water scarcity remains a critical challenge for all sectors profiled in GEO-5 for Business. Companies in the tourism, chemicals and other sectors could face increased operational costs. In South Africa, platinum mines in the Olifants River system are expected to face water charges ten times their current value by 2020 due to water scarcity. Competition with local communities and other water users could potentially lead to negative impacts on reputation.

Findings by Sector from GEO-5 for Business

Building and Construction

The sector remains vulnerable to volatility in energy markets and rises in energy prices due to the energy-intensive nature of producing steel, concrete and other materials. Concerns about low water availability in certain regions may limit potential development opportunities. The sector could come under increasing consumer pressure to reduce waste generated during construction.

Urbanization and economic development in emerging economies can translate into substantial demand for new, greener housing and infrastructure. Demand for coastal and flood defenses, and structures that can withstand extreme weather, may also rise.

Chemicals

Chemical production is often water intensive. Consequently, the sector will face increasing consumer pressure to be more water-efficient, and to better manage emissions of chemical waste. Increased regulations may phase out, or restrict the use of, certain chemical products. Such regulations can open up market opportunities to provide more sustainable alternatives.

Demand is set to rise for chemicals used in high-performance insulation, energy-efficient lighting, renewable energy technologies, as well as products linked to water-saving technologies, such as purification and desalination. Greater use by companies of more sustainably-produced chemicals, coupled with efforts to minimize adverse impacts, can enhance reputation and brand value.

Power

By 2035, global electricity demand could be over 70 percent higher than 2009 levels. More frequent heat waves associated with climate change may impact the reliability of the grid. In 2012, blackouts in Northern India, which were caused by higher demand due to high temperatures and low monsoon rains, left hundreds of millions of people without power for several hours. Power companies will need to harden, or relocate, infrastructure vulnerable to extreme weather, and better prepare for supply interruptions.

Coal's global share of total power generation is expected to decrease from two-fifths to one third by 2035, while renewables are set to increase from 20 to 31 per cent. The 'decarbonisation' of electricity will present opportunities for the sector to advance renewable energy technologies.

Extractives

Extreme weather events associated with climate change are influencing operational costs in the sector in many parts of the world. Legislation to extend protected areas that support marine and terrestrial biodiversity may limit the areas available for future exploration and extraction.

Opportunities may come through an increased demand for certain minerals and metals used in renewable energy and energy efficiency technologies. Warming temperatures may open up previously inaccessible areas for exploration, although potential environmental impacts will need to be assessed.

Finance

Insurers may experience severe capital losses and reduced profitability if they fail to adequately identify and plan for climate-related risks. Property and casualty insurers will likely see increasing claims due to severe weather. On the other hand, the capital needed to address climate change will result in a greatly-expanded market for financing.

Financial institutions will need to enhance coordination with the scientific community to ensure access to environmental data and analysis that can inform better planning.

Food and Beverage

High levels of water use and heavy reliance on ecosystem services render this sector especially vulnerable to environmental change. Growing zones for food crops will shift as local climates change. Marine fish stocks are increasingly overexploited or depleted, while ocean acidification and higher water temperatures are thought to be major factors in the degradation of coral reef ecosystems, which provide nursery grounds for some commercially important fish species.

New markets are set to open up for more climate-resilient food varieties. Markets for organic food and beverages expanded on average by 10 to 20 per cent per year during parts of the last decade. Companies certified as sustainable food producers can also tap into growing customer demand.

Healthcare

Biodiversity loss will limit the discovery of natural compounds used in new medicines or traditional remedies. One estimate suggests that extinctions of certain species mean the Earth is losing one major drug every two years.

Approximately one quarter of the global disease burden can be attributed to environmental factors. Demand for healthcare services could rise further, especially due to conditions linked to air pollution, and water-borne diseases.

Information and Communication Technology (ICT)

Datacentres use up to 200 times more electricity than standard office buildings, making ICT companies' operating costs vulnerable to increases in energy prices. Electronic waste (e-waste) is the fastest-growing waste stream in the world. Its proliferation, as well as concerns about the environmental impacts of the sourcing of key materials in developing countries (eg. heavy metals), may lead to increasing consumer and regulatory pressure on the industry,.

The ICT sector is likely to see growing demand for collecting and processing environmental data. Growth markets will also lie in ICT products that enable environmental improvements in other sectors (eg. building energy management systems).

Tourism

Extreme weather events, impacts of climate change, water scarcity, and declining biodiversity can make particular destinations more or less attractive to consumers, thus impacting market demand for businesses operating in these locations. Stricter regulations on some practices (eg. fishing and snorkeling on coral reefs) may impact niche sectors.

Overall, tourism demand is set to grow globally, especially the market for nature-based tourism and eco-tourism - for which customers are often willing to pay more.

Transport

Extreme weather could disrupt supply chains and infrastructure more frequently. Increasing extreme weather and water scarcity could disrupt supply chains and infrastructure more frequently. Regulations in many countries to reduce greenhouse gas emissions, can increase costs, shift consumer demand, and influence product design. Such regulations will grow more restrictive and widespread as climate concerns increase. Complying with regulations to reduce levels of air pollution (soot and particulate matter) from vehicles could also add to operational costs.

At the same time, governments are introducing regulations and incentives to stimulate demand for cleaner transportation options. Businesses in the sector can take advantage of new and expanded markets for low-carbon and fuel-efficient technologies.

Notes to Editors

The full report, GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector, is available at: http://www.unep.org/geo/pdfs/geo5/GEO5_for_Business.pdf